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How the Maker of TurboTax Fought Free, Simple Tax Filing

Intuit has spent millions lobbying to keep tax season miserable.

| Tue Mar. 26, 2013 1:35 PM EDT

This story was co-produced with NPR. It originally appeared on the ProPublica website.

Imagine filing your income taxes in five minutes—and for free. You'd open up a pre-filled return, see what the government thinks you owe, make any needed changes, and be done. The miserable annual IRS shuffle, gone.

It's already a reality in Denmark, Sweden and Spain. The government-prepared return would estimate your taxes using information your employer and bank already send it. Advocates say tens of millions of taxpayers could use such a system each year, saving them a collective $2 billion and 225 million hours in prep costs and time, according to one estimate.

The idea, known as "return-free filing," would be a voluntary alternative to hiring a tax preparer or using commercial tax software. The concept has been around for decades and has been endorsed by both President Ronald Reagan and a campaigning President Obama.

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"This is not some pie-in-the-sky that's never been done before," said William Gale, co-director of the Urban-Brookings Tax Policy Center. "It's doable, feasible, implementable, and at a relatively low cost."

So why hasn't it become a reality?

Well, for one thing, it doesn't help that it's been opposed for years by the company behind the most popular consumer tax software—Intuit, maker of TurboTax. Conservative tax activist Grover Norquist and an influential computer industry group also have fought return-free filing.

Intuit has spent about $11.5 million on federal lobbying in the past five years—more than Apple or Amazon. Although the lobbying spans a range of issues, Intuit's disclosures pointedly note that the company "opposes IRS government tax preparation."

The disclosures show that Intuit as recently as 2011 lobbied on two bills, both of which died, that would have allowed many taxpayers to file pre-filled returns for free. The company also lobbied on bills in 2007 and 2011 that would have barred the Treasury Department, which includes the IRS, from initiating return-free filing.

Intuit argues that allowing the IRS to act as a tax preparer could result in taxpayers paying more money. It is also a member of the Computer & Communications Industry Association (CCIA), which sponsors a "STOP IRS TAKEOVER" campaign and a website calling return-free filing a "massive expansion of the US government through a big government program."

In an emailed statement, Intuit spokeswoman Julie Miller said, "Like many other companies, Intuit actively participates in the political process." Return-free programs curtail citizen participation in the tax process, she said, and also have "implications for accuracy and fairness in taxation." (Here is Intuit's full statement.)

In its latest annual report filed with the Securities and Exchange Commission, however, Intuit also says that free government tax preparation presents a risk to its business.

Roughly 25 million Americans used TurboTax last year, and a recent GAO analysis said the software accounted for more than half of individual returns filed electronically. TurboTax products and services made up 35 percent of Intuit's $4.2 billion in total revenues last year. Versions of TurboTax for individuals and small businesses range in price from free to $150.

(H&R Block, whose tax filing product H&R Block At Home competes with TurboTax, declined to discuss return-free filing with ProPublica. The company's disclosure forms state that it also has lobbied on at least one bill related to return-free filing.)

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Proponents of return-free filing say Intuit and other critics are exaggerating the risks of government involvement. No one would be forced to accept the IRS accounting of their taxes, they say, so there's little to fear.

"It's voluntary," Austan Goolsbee, who served as the chief economist for the President's Economic Recovery Advisory Board, told ProPublica. "If you don't trust the government, you don't have to do it."

Goolsbee has written in favor of the idea and published the estimate of $2 billion in saved preparation costs in a 2006 paper that also said return-free "could significantly reduce the time lag in resolving disputes and accelerate the time to receive a refund."

Other advocates point out that the IRS would be doing essentially the same work it does now. The agency would simply share its tax calculation before a taxpayer files rather than afterward when it checks a return.

"When you make an appointment for a car to get serviced, the service history is all there. Since the IRS already has all that info anyway, it's not a big challenge to put it in a format where we could see it," said Paul Caron, a tax professor at University of Cincinnati College of Law. "For a big slice of the population, that's 100 percent of what's on their tax return."

Taxpayers would have three options when they receive a pre-filled return: accept it as is; make adjustments, say to filing status or income; or reject it and file a return by other means.

"I've been shocked as a tax person and citizen that this hasn't happened by now," Caron said.

Some conservative activists have sided with Intuit.

In 2005, Norquist testified before the President's Advisory Panel on Federal Tax Reform arguing against return-free filing. The next year, Norquist and others wrote in a letter to President Bush that getting an official-looking "bill" from the IRS could be "extremely intimidating, particularly for seniors, low-income and non-English speaking citizens."

Norquist, founder of Americans for Tax Reform, declined to comment, but a spokesman pointed to a letter he and other conservatives sent this month to members of Congress. The letter says the IRS wants to "socialize all tax preparation in America" to get higher tax revenues.

A year after Norquist wrote Bush, a bill to limit return-free filing was introduced by a pair of unlikely allies: Reps. Eric Cantor (R-Va.), the conservative House majority leader, and Zoe Lofgren (D-Calif.), a liberal stalwart whose district includes Silicon Valley.

Intuit's political committee and employees have contributed to both. Cantor and his leadership PAC have received $26,100 in the past five years from the company's PAC and employees. In the last two years, the Intuit PAC and employees donated $26,000 to Lofgren.

A spokeswoman said in an email that Cantor "doesn't believe the IRS should be in the business of filling out your tax returns for you," and that the bill was designed to "prevent the IRS from circumventing Congress."

Lofgren did not respond to requests for comment.

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Intuit did not issue public statements on the return-free filing bills, but CCIA President Ed Black has called return-free filing "brilliantly Machiavellian." When Sens. Ron Wyden (D-Ore.) and Dan Coats (R-Ind.) introduced a bipartisan tax reform bill in 2011 that included a return-free plan called "Easyfile," Norquist blasted it.

"The clear goal of this measure is to raise taxes in a way that leaves politicians with clean hands," he wrote in a letter to the two senators.

Political opposition hasn't been the only hurdle. Supporters say return-free filing has been overshadowed in a tax debate that has focused more on rates, deductions, and deficits.

Further, return-free filing would not be available to everyone. It's best for the slice of taxpayers with straightforward returns who don't itemize or claim various credits.

Still, past studies estimate that this group might include 40 percent of filers or more; the IRS expects to process 147 million individual returns this year.

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